Hang Seng, Shanghai Composite Price Action

Hang Seng, Shanghai Composite Index – Forecast:

• Manufacturing activity in China rose slightly in June.
• Non-manufacturing activity in China eased in June.
• What is the outlook for the Hang Seng Index and the Shanghai Composite Index?

China/Hong Kong stock indices held steady on hopes of broader stimulus after data showed manufacturing activity in China rose slightly while non-manufacturing activity eased in June.

The China NBS Manufacturing PMI advanced to 49.0 in June, in line with expectations, compared to 48.8 last month. China’s NBS non-manufacturing PMI fell to 53.2 in June from 54.5 last month. This follows data on Wednesday showing that annual profits at Chinese industrial firms fell 18.8% year-on-year in the first five months of 2023, compared to a contraction of 20.6% in the January-April period.

Chinese economic data has softened since April, raising concerns that the post-Covid economic recovery has run out of steam. The economic surprise index is now back near the levels before the economic reopening earlier this year. As a result, China’s consensus economic growth forecast for the current year has been lowered in recent weeks.

Beijing announced measures to support the economy, including lowering key lending standards and a 520 billion yuan package on new energy vehicles. Chinese Premier Li Qiang said on Tuesday that China will implement more effective policy measures to expand domestic demand.

Daily chart of the Hang Seng Index

Chart by Manish Gradi using TradingView

Hang Seng Indicator: no upward momentum

On the technical charts, the Hang Seng Index was affected by a severe convergence resistance at the 89-day moving average and the upper edge of the Ichimoku Cloud on the daily charts. Unless the index can clear the April high of 20,865, the path of least resistance remains sideways to the downside. Moreover, the fresh six-month low recorded at the end of last month reaffirms the bearish background in the near term. Initial cushion is at end-May low at 18045, followed by end-2022 low at 16830.

Shanghai Composite Index

Chart by Manish Gradi using TradingView

Shanghai Composite Index: bearish bias

Last month’s break below key support on the horizontal trend line from December confirmed that the seven-month uptrend was over. This week’s drop to a six-month low reinforces the bearish bias. Immediate support is found at Monday’s low of 3145, followed by 3090 (61.8% retracement of the October 2022 to May 2023 high). Stronger support is found at the December low of 3030.

– Posted by Manish Grady, Strategist for DailyFX.com

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